Fooled by Information

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There is a reason I picked title of today’s post – Fooled by Information. I am sure most of you must be part of at least 3-5 WhatsApp groups dedicated to markets/trading. People often talk too much on topic(s) that are useless and yield nothing but noise. US election predictions, COVID-19 data, Economy contraction data, GDP data, PMI data, US Employment data, Trump’s ratings, Biden’s lead data, and the list goes on. People try to connect everything with market and try to predict ONE thing – The next great fall.

I was reading a discussion in one of the groups where people were throwing all possible stats & figures of how Trump losing the US election will lead to great crash. Surprisingly, people have starting Trump as pro-markets. Although that he is, but his perception was different before he became president. If you go back 5 years and analyze the tone and predictions on US elections you’d see how starkly everyone’s tone has changed. Before Trump won elections it was said that market would crash to abyss if Trump wins. What happened in reality is totally different. US markets went on hitting new all time highs.

Now, people are saying if Trump loses markets would crash badly.

Seriously, in 5 years perception changed 180 degrees. This tells us one thing or rather two.

First – We really cannot predict how market would react to US elections

Second – People always want to predict only crash

How absurd is it that we spend / waste so much time & energy discussing US elections and go on predicting what will happen to markets. Why is that?

People love panic

Yes, I have finally started believing in this. People love panicky situations and hate certainty. The same people create panic by saying there is no certainty and hence we must panic. COVID fall and rally has been a very recent example of this.

A social acquaintance who was, or is, celebrated fundamental analyst and was seen very highly across many social groups called me to check if I was holding Bajaj Finance. This was early April I believe. He went on giving long list of reasons why Bajaj Finance is a bad investment now and how terrible economic situation is going to be and I must sell Bajaj Finance immediately. He tried every possible attempt to create panic. My response was simple – Let’s see. I am not selling.

Come 28th May 2020, I bought all the desired quantities of Bajaj Finance at 1800 and the rest is history.

Then another Technical Analyst who is also seen very highly in many social groups went on creating panic in many groups. His tone was so negative that I thought world is going to end tomorrow.

He went on saying Nifty is nothing but dead cat bounce at 8800, then at 9500 he said it is pull back in bearish market and we are soon heading to 6000. And then finally at 10500 he become bullish.

Take Away: People just love panic. They love to write such posts and talk gibberish to prove their expertise. and such people get more and more followers. Why? – Because people love panic.

Fooled by Information

We are fed insane amount of information every day. Through TV/Newspapers, social media groups, Twitter, Telegram, blogs, podcasts, YouTube videos and what not. Life of a new trader today is even more difficult because people / social media experts are really driving their hidden agenda and not really guiding them. Almost every day there is a webinar on some different trading method. People see someone experiencing success with pattern trading and they go on following that expert. Suddenly, some other person comes and throws a big name like Fibo/Gann and people go and follow him, then there are Astro guys.

Point is – people are just fooled everyday by information. There is just so much distraction created that allows nobody really focus on one thing, master it, and succeed.

People love noise. Whether be it on digital platforms, social platforms, or TV or even in markets. Being active at wee hours has become a fashion and people are slowly forgetting how it was before WhatsApp and how wonderful life was then and how wonderful could it be even today if we learn to control what is fed to us through information overload.

This unnecessary noise creates uncertainty. This leads to fear, leading to panic and the panic further increases noise. The cycle is self-sustaining and runs in endless feedback loop.

Conclusion

Let us make peace with the fact that we cannot predict market reactions to certain events. We waste so much time in doing so which should be invested in skilling up. Rather than trying to predict market reactions to certain events, we must try to spot trends & sub-trends. Once you identify broader trend, it becomes extremely simple to trade markets. Don’t believe me. Just have a look at below chart once that I have been using to trade Nifty from Feb 2020 budget.

  • This chart below has not failed even once
  • The levels were plotted before budget and have never been touched since then
  • Have trade all sides – down and up
  • The lowest level was also plotted in Feb which was respected absolutely spot on
  • Read text boxes by zooming to understand more. Have blocked certain technical aspects as this is my custom setup
Nifty Master Chart

and now go to my Twitter feed and just see how many times have I got levels correct on Nifty.

All I am saying this such setup is possible when you cut all the noise, say no to information overload, and create a peaceful focused trading environment.

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